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Determining Exempt versus Non-Exempt Employees
by Jason Hashimoto, Esq., Employee Relations Specialist
It may be a shock to discover that yes, you do have to pay your receptionist overtime. Or do you?
The process of determining whether an employee is exempt or non-exempt can be confusing. But employers need to determine their employees' classifications in order to pay them in an appropriate, legally compliant fashion.
Being classified as "exempt" means an employee is not subject to either your state's labor code or the federally mandated Fair Labor Standards Act (FLSA). In short, it means the employee doesn't have to be paid for working overtime. To determine an employee's exempt status, your company must follow the more stringent of the regulations outlined by either your state's labor code or the FLSA. If your state doesn't have a labor code, then you must follow the FLSA.
This article will focus on California standards for determining exempt versus non-exempt employees. No matter where your company is located, you can follow California wage standards and be safe, because California has the strictest labor code in the country! More likely, however, you'll want to investigate the regulations that apply to your own state, since they may be more lax than those described here.
In any case, the California rules for exempt and non-exempt employees will give you an idea of the issues at stake, and indicate the kinds of questions you'll need to consider in determining your employees' classifications.
What's the California state law regarding non-exempt employees?
California law requires that non-exempt employees be paid overtime for more than eight hours worked in a day, or more than 40 hours worked in a week.
All my employees are salaried; therefore, they're all exempt, right?
Not exactly. While most exempt employees are required to receive a salary, salaried workers are not necessarily exempt.
What's the most commonly used exemption?
The "administrative exemption" is the most common exemption. In general, an employee is an exempt administrator if he/she regularly exercises discretion and independent judgment, performs under only general supervision, and is primarily engaged in duties that require the exercise of discretion and independent judgment. This means that in the course of day-to-day activities, the employee frequently compares and evaluates possible courses of conduct and, after considering various possibilities, acts or makes a decision. An employee who follows a prescribed procedure, or determines which procedure to follow, is not exercising independent judgment.
While most if not all employees are required to exercise discretion in decision making, an exempt employee must be dealing with matters that are significant to the policies or operations of the business or its customers.
My employees are college graduates. So they must be exempt because they are professionals, right?
Education and/or title do not determine whether an employee is considered exempt under the "professional exemption" criteria. An employee is exempt as a professional if he/she is licensed or certified by the State of California and primarily engaged in the practice of law, medicine, dentistry, optometry, architecture, engineering, teaching, or accounting.
An employee is also exempt as a professional if he/she is primarily engaged in an occupation recognized as a learned or artistic profession. This means work requiring knowledge of an advanced type in a field or science, or an education customarily acquired by a prolonged course of specialized intellectual instruction, or work that is original and creative in character in a recognized field of artistic endeavor. The work must be predominantly intellectual and varied in character, and the output or result cannot be standardized. Professional employees must be engaged in the functions of their profession; a lawyer digging ditches is not exempt, nor is a CPA whose duties are basically book keeping.
I made my best data processor the Team Lead. She does the same thing as the rest of the data processors, plus she collects their time cards and turns the computers on in the morning and off at the end of the day. She's exempt because she's now an executive, right?
Not quite. In addition to exercising discretion and independent judgment, an employee is an "Exempt Executive" if he/she has duties and responsibilities involving the management of the company, department, or subdivision.
The employee must also customarily and regularly direct the work of two or more employees, have authority and/or influence in the hiring, firing, promotion or other change in status of other employees, and be primarily engaged in those managerial duties. This means that the employee must spend at least 50% of his/her time engaged in exempt duties, or work that is directly related to those duties.
Well, my Data Processor Team Lead should at least qualify for the "Computer Professional" exemption-right?
California only recently recognized certain computer professionals as being exempt from overtime pay. In September 2000, California created an overtime exemption for computer professionals, one which is more stringent than the federal standard-and, accordingly, California employers must follow the state standard. Many states do not have such a standard, despite the nation-wide explosion in technology positions!
In California, a computer professional is exempt from overtime pay if he/she is primarily engaged in work that is intellectual or creative, requires the exercise of discretion and independent judgment, and is highly skilled and proficient in the theoretical and practical application of highly specialized information/computer systems analysis, programming, and software engineering. The primary duties of the employee must consist of at least one of the following
- The application of systems analysis techniques and procedures including consulting with users to determine hardware, software, or system specifications.
- The design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications.
- The documentation, testing, creation, or modification of computer programs related to the design of software or hardware for computer operating systems.
- Lastly, the employee must be paid at least $41 per hour. This does not translate to a corresponding annual or monthly salary; exempt computer professionals must be paid hourly. For example, if the employee works ten hours in a day, he/she must be paid at least $41 for those ten hours-but the employer doesn't have to pay overtime for the "additional" two hours.
What about data processors?
Data processors may use a computer to enter work product into a system, but their duties do not meet the requisite criteria. Therefore, they would not be classified as exempt computer professionals.
TriNet can help you in determining your employee classifications. If you'd like to find out more about TriNet's services, please contact us.